The effects of the memorandum of incorporation (MOI) on third parties

Do you manage a business? If so, it is important that you understand the very significant changes triggered by the Companies Act 71 of 2008.

Under the Companies Act 61 of 1973 (the “Old Act”), every company had to register its Memorandum of Association and its Articles of Association. While the previous Act imposed various requirements on the form and content of the memorandum, it did not govern the content of the articles.

In terms of the 1973 Act, it was legal to alter the memorandum and articles independently of one another through a shareholders’ special resolution. Additionally, the memorandum and articles were binding between the members (shareholders) of the company and the company itself.

Now, however, the rules have changed quite drastically. Under the Companies Act 71 of 2008 (the “new Act”), the MOI is a legally binding document between shareholders themselves, between the company and shareholders, and between the company and third parties.

Now, existing companies that registered under the old Act must align their existing articles and memorandi with the provisions of the new Act. Furthermore, the new Act has set a window period within which this is to be done. The window period closes at the end of April 2013. This means it is important for companies to consult their attorneys sooner rather than later to assess the impact these changes may have on their financial year-end and to reconsider their strategies.

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